Reacting to: Andy Burnham to give regional mayors share of income tax (BBC News) →
The single most important line in this story is one most of the coverage buried. Reporting the announcement, the BBC states it flatly: the rates of income tax will not change as a result of the reform. That should be the first thing any business owner reads, because the instinctive reaction to "mayors get income tax" is to start bracing for a Manchester rate and a Birmingham rate and a West Yorkshire rate. That is not what has been announced. Nothing in your 2026-27 or 2027-28 tax computation moves because of this.
What has been announced is a plumbing change — and plumbing changes usually matter more than rate changes, just more slowly. From April 2027 English strategic authorities keep some of the business rates collected in their areas. From April 2028 they receive a portion of the income tax raised there. Which means the people who decide your planning application, your local transport scheme and your skills funding will, for the first time, have a direct financial stake in your payroll and your premises. My honest view is that this is good for business, and that it carries a risk nobody has costed yet. Both halves are worth understanding now, while the detail is still being written.
What was actually announced
Prime Minister Andy Burnham confirmed on 31 July that all mayors of city regions in England will receive a share of income tax revenue for the first time, as part of his drive to move power out of Westminster. The verified detail, as the BBC reports it:
- English strategic authorities will also keep some of the cash from business rates collected in their areas, and gain greater control over housing, transport and skills.
- The timetable is April 2027 for business rates and April 2028 for income tax.
- The exact portion has not been decided. More detail comes when Chancellor John Healey delivers his first Budget in the autumn — now confirmed as 28 October — with a full policy paper published the same day.
- Transport approval thresholds rise: local leaders will be able to progress schemes up to £500m without central sign-off, up from £200m.
- An equalisation system is being designed so areas collecting less tax keep financial support.
For scale, the OECD figure quoted in the report is the one that explains why this is happening at all: just 5.8% of national taxes in the UK are collected at local level, the lowest in the G7, against 20.4% in France, 36% in Japan and 45.7% in the United States. The criticism is real too. Shadow chancellor Sir Mel Stride called the announcement "very short on the detail" with no new money attached. The Liberal Democrats warned of a "postcode lottery" leaving rural areas short-changed. And Labour's Perran Moon, MP for Camborne and Redruth, called the plans "discriminatory" because Cornwall will not have a mayor or a combined authority and so risks missing out entirely.
Putting real numbers on it
No percentage has been set, so any figure here is illustrative arithmetic rather than policy. The one concrete number in circulation is the think tank Re:State's suggestion, reported by the BBC, that mayors be allocated 2.5p in every pound raised by the 20p basic rate in their areas. That is enough to size the thing.
Take a ten-person business in an English city region, average salary £32,000, on the 2026-27 figures for England (personal allowance £12,570, basic rate 20%).
- Each employee has £19,430 of taxable pay at 20% — £3,886 of income tax a year.
- Across ten of them, your payroll carries £38,860 of income tax to HMRC annually.
- 2.5p out of 20p is one eighth of that basic-rate tax: £485.75 per employee, or £4,857.50 across the payroll, would stay in the region.
Now add premises. Take a shop or café with a rateable value of £30,000. At the 2026-27 retail, hospitality and leisure multiplier of 38.2p — the figure we worked through in the piece on the 20% pub rates cut — the annual bill is £11,460. The retention share is not yet set, but from April 2027 part of that stops being a transfer to the Treasury and becomes local revenue.
So a ten-person business with a shop front sits on roughly £50,000 a year of tax that its local authority is about to acquire a direct stake in. That is the number worth carrying into the next conversation you have with your council.
The blind spot, and it is exactly where owner-managed businesses sit
Run the same arithmetic over the most common owner-director structure in Britain — a salary of £12,570 and dividends of £50,000.
- The salary sits inside the personal allowance, so it produces no income tax at all.
- The dividends produce £8,396.25 of tax at 2026-27 rates, as we worked through in the Budget planning piece.
- But dividend income is not part of the devolved income tax base in Scotland, and nothing in this announcement brings it in.
On the Re:State illustration, that director's £62,570 of income contributes £0 to the local pot, while an employee on £32,000 contributes £485.75. The most tax-efficient structure in the country is also the one that puts the least into the region it operates in.
That is not a criticism of the structure. It is legal, ordinary, and it is what the tax code encourages. But it is the structural fact to watch, because Scotland has spent two years demonstrating what happens when a devolved body leans on a tax base that mobile income can simply step outside of — we covered the HMRC outturn data suggesting the 48p rate is costing money rather than raising it. English regions are being handed a share of that same narrow base. If the receipts disappoint, the pressure will be to widen it.
Nobody has proposed that, and I am not predicting it. But fiscal devolution in the UK has form for arriving in stages: Scotland got a limited Scottish rate of income tax from April 2016 under the Scotland Act 2012, then full control of rates and bands on earned income from April 2017 under the Scotland Act 2016. Revenue-sharing first, rate-setting later. Conservative Tees Valley mayor Lord Houchen has already said that if handed a portion of income tax he would set up a local rebate scheme to hand money back — which tells you that mayors are thinking about levers, not just receipts, on day one.
What it means in practice — and it depends who you are
If you employ people in an English city region. Nothing changes in your payroll. PAYE codes, RTI submissions and employer National Insurance are all untouched. What changes is your standing. Your payroll becomes a line in your mayor's revenue forecast, and if you have ever struggled to get local government to take a business case seriously — a junction, a bus route, a skills programme — the incentive on the other side of that table is about to improve. Make the case in the terms they are about to be measured on.
If you occupy business premises. April 2027 is the earlier date, and rates are the more immediate exposure. Your rateable value is about to become a figure your local authority has a direct financial interest in defending. If you think yours is wrong, get it looked at before that incentive arrives rather than after.
If you are an owner-director with no premises and a dividend-heavy structure. There is nothing to do and nothing to change. This announcement should not alter your extraction planning by a penny. Note only that you sit outside the base being devolved, which is where any future pressure would eventually land.
If you are in Northern Ireland, Scotland or Wales. This is an England-only reform. Northern Ireland already has its own rating system, with a regional rate set at Stormont and district rates set by councils.
Two things to do before 28 October
1. Check your rateable value. It is free and it takes about ten minutes on the GOV.UK service at gov.uk/correct-your-business-rates. Find your property, read the valuation detail the Valuation Office holds, and compare it against what you actually pay in rent and against comparable units nearby. If it looks wrong, start the challenge now — these take months to resolve, and April 2027 is when your council acquires a reason to defend the higher figure.
2. Change nothing about your tax planning because of this. No rate change, no new tax, no new filing obligation. The rule from our Budget piece still applies: only take an action now if it still makes sense assuming nothing at all changes on 28 October. This announcement fails that test for the simple reason that there is nothing in it to act on yet.
What is still uncertain, and when you will know
The percentage — the one number that decides whether this is meaningful or symbolic — has not been set. Neither has the equalisation formula that determines what happens to areas with a smaller tax base, nor whether areas without a mayor get the same deal. All three land on 28 October 2026, in the Budget and the policy paper published alongside it. Treasury sources told the BBC that officials are "still figuring out how it will work in practice", which is an unusually candid way of saying the design is not finished.
Until then there are two dates for the diary — April 2027 for business rates, April 2028 for income tax — and one number to check, which is your rateable value. That is genuinely the whole of the actionable content. Anything more definite you read between now and October is someone guessing.
The premises side of this is ordinary rates and property work and the payroll side is ordinary payroll; both are included for clients on our accountancy packages rather than charged as extras. If you want to walk into a council or LEP conversation able to state what your business actually contributes locally, that is management accounts work — and it is a much stronger opening than goodwill.